belt & road initiative: high time to actf45dd9a2-45b6-48dd-8b67-07d0e9… · source: mckinsey,...

Belt & Road Initiative: High time to act

Dr. Jerome Jean HaegeliGroup Chief Economist14 May 2019, Shanghai

Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli

Today, Tomorrow and What Is Key…

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R - R - RReflation with Central Bank and Fiscal Stimulus Recession fears?

Resilience

Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 3

Global economic outlook


10 Years After The Global Financial Crisis… The World Is Less Resilient

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High debt burden

Negative yielding sovereign bonds

Lower economic growth

+70trn 10trn -2%pts

Sources: IIF, IMF, Swiss Re Institute; global figures


The Three Ps Key To Watch For 2019 And Beyond

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Prices

Policies

Politics

2020: High US recession risk at 35%


Economic Outlook: EM - The Place To Be

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Source: Swiss Re Institute, IMF; Note: PPP refers to purchasing power parity for the exchange rate

Emerging Markets will continue grow significantly faster than Developed Markets

0% 10% 20%

1998

2008

2018

USA

China

China has overtaken the USand contributes more to global GDP (PPP)

United States:2.5%

Latin America: 2.1%

China: 6.3%

Euro area:1.2%

Real GDP growth in 2019

EM Asia excl. China: 6.2%


Reforms Key Also In China Given High Debt Ratio And Potential Current Account Deficit

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0

50

100

150

200

250

300

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

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Share of debt as % of GDP by sector

Non-financial corporate Government Household

-600

-400

-200

0

200

400

600

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

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08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

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Current Account by component ($ bn)

CA: net of capital and financial accountCA: net of serviceCA: net of goodsCA balance

USD

Source: BIS, Ministry of Finance, PBoC, Swiss Re Institute


Belt and Road Opportunities


Infrastructure Investment Provides Enormous Opportunities

9

34 bn Premium potential from construction activities

65 and 2/3 countries and world population affected by BRI

6.4 trn Estimated infrastructure investments in BRI countries

Source: Swiss Re Institute


As Long-term Investors Re/insurers Help Close The Global Infrastructure Gap

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Capital market share of global infrastructure debt financing:

Source: McKinsey, OECD, S&P, Preqin, WEF and IIF. Numbers based on latest available data

Note: McKinsey estimates infrastructure financing needs at USD 3.3trn/year to support expected economic growth rates. ESG assets available for investments is relative to available pool of investments across asset classes

USD 40trn

USD 80trn

111%

~10-20%

Infrastructure financing needs until 2030:

Long-term investor asset base:

Advanced economy debt to GDP ratio:


The Challenges: Think Global, Act Local

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Our Call For Action

• Strengthen private capital market solutions, lower barriers for long-term investors

• Encourage Public Private Partnerships (PPP)

• Leverage Multilateral Development Banks’ balance sheets

• Promote sustainable investing

• “Best practice” pilot transaction for tradable infrastructure asset class, eg with AIIB


Key takeaways

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• The global economy is less resilient than 10y ago

• The economic shift from West to East continues

• BRI offers enormous opportunities for economic growth and to strengthen resilience

• Insurance and economic reforms are key recipe to China’s and global economic resilience

Key Takeaways

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Appendix

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Cross-border infrastructure projects are exposed to a multitude of risks

• Geopolitical and territorial disputes

• Displacement and social unrest

• Concerns about control

Political

• Varied legal environments• Environmental issues• Labour regulations and

unrest

Regulatory

• Vulnerability to external risks • Excessive debt, weak

finances• Inflation, Inefficient fund

allocation

Economic

• Corruption and work ethics• Weak contract enforcement• In-transparent employee

practices

Operational

Risks in BRI

Political risks pose a major threat to B&R projects outside China



BRI will boost development in countries along the “road” and “sea“ routes

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Stylized view of the benefits of B&R


Note: Protection gap is a measure of underinsurance. More detailed explanations around the protection gap estimates are available in Swiss Re Institute’s sigma 5/2018 “Global economic and insurance outlook 2020”Source: Swiss Re Institute

36 330 2

11 10 3 4

43 26 27 4

Latin AmericaTotal: 28bn

EuropeTotal: 100bn

15 5 5NA

MEATotal: 25bn

178

6944

13

Asia PacificTotal: 304bn

North AmericaTotal: 69bn

Mortality

Property cat

Property non cat

Agriculture

Protection Gaps Remain Large For BRI Participant Countries/Markets

Protection gaps in USD bn


Overview of Swiss Re’s macro forecasts

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US 2018 2019 2020 2018 2019 2020

Swiss Re Institute 2.9 2.5 ↑ 1.8 ↑ 2.4 1.9 2.3Consensus 2.4 2 1.9 2.2

IMF 2.3 1.9 2.0 2.7

Swiss Re Institute 2.38 2.38 2.38 2.69 2.70 2.70Bloomberg Consensus 2.43 2.38 2.75 2.87

CPI (% change)

10y Gov. Bond Yield (%)Fed Funds Rate (%)

Real GDP (% change)

Euro Area 2018 2019 2020 2018 2019 2020

Swiss Re Institute 1.8 1.2 1.2 1.7 1.3 1.5Consensus 1.1 1.3 1.3 1.4

IMF 1.9 1.7 1.7 1.8


Refi. Rate (%)

Real GDP (% change) CPI (% change)

10y Gov. Bond Yield (%)

UK 2018 2019 2020 2018 2019 2020

Swiss Re Institute 1.4 1.3 1.5 2.5 1.8 ↓ 1.9Consensus 1.3 1.5 2.0 2.1

IMF 1.2 1.4 1.8 2.0


CPI (% change)

10y Gov. Bond Yield (%)Bank Rate (%)

Real GDP (% change)China 2018 2019 2020 2018 2019 2020

Swiss Re Institute 6.6 6.3 ↑ 6.1 2.1 2.3 2.5

IMF 6.3 6.1 2.3 2.5

Swiss Re Institute 2.55 2.50 2.50 3.31 3.20 3.10

Bloomberg Consensus - - 3.16 2.98

CPI (% change)

10y Gov. Bond Yield (%)Reverse Repurchase Rate 7d (%)

Real GDP (% change)


Legal notice

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©2019 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.

The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.

belt & road initiative: high time to actf45dd9a2-45b6-48dd-8b67-07d0e9… · source: mckinsey,...

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